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LIVE MARKETS S&P Flashes Caution Signal for Lower-Rated U.S. Tech Companies

LIVE MARKETS S&P Flashes Caution Signal for Lower-Rated U.S. Tech Companies

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While good growth prospects are expected for the U.S. technology industry over the next couple of years, S&P Global Ratings said it was cautious about companies it rates in the below-investment-grade level of B-minus.

In a report on Wednesday, the credit rating agency said significant market liquidity has enabled those companies, along with others, to increase their debt load to fund dividends, mergers, and acquisitions.

About 40% of U.S. tech companies rated by S&P are in the B-minus category.

S&P noted that plans by these companies to deleverage are based on the continuation “of favorable economic conditions that support business growth and access to capital markets that enable flexibility to build and expand their offerings through acquisitions to remain competitive”.

“Market conditions will eventually turn, and we are closely monitoring highly leveraged B-minus rated companies based on patterns of companies we downgraded to CCC-plus or below,” the report said.

It added that over the next few years, the number of companies upgraded from B-minus is expected to be limited due to “the absence of financial sponsors’ incentives to lower their financial risk tolerance, good growth trajectory in the tech sector that favors M&A transaction, as well as opportunistic debt-financed dividends”.